At some stage in our lives, most of us take on debt. The specific amount of debt will be different for everyone, but most of us can relate to it.
Unfortunately, the more debt you take on, the harder it can be to repay. We’ve put together 9 of the easiest ways to get out of debt in Canada, including budget planning and repayment strategies. Hopefully, these tips will help you get out of debt in the right way.
Identify Your Debts First
Before you implement a plan to repay your debt, it is a good idea to make a list of everything you owe. It could be anything from a mortgage, student loan, car loan, or credit line.
When creating your list, be sure to add the following:
- The total amount you owe for this debt
- The minimum monthly payment
- Your current interest rate
Once you prepare your list, you can begin thinking about how to pay off your debts. Remember, there is no “one size fits all” approach to debt repayment. You need to figure out which method works best for you and your lifestyle. Our tips are resources you can use to find out!
Nine Tips To Get Out Of Debt In Canada
Pay Your Debts First With The Highest Interest Rate
One strategy to get rid of debt is to make minimum payments on all your debt/credit cards, except for the “most expensive,” those with the highest balance and interest rates. Instead, aggressively pay off the debt that charges you the most interest, and work toward full repayment of that debt while making the minimum payment on your other debt. Once you have paid off your most expensive debt, choose the next most expensive debt and put the most money into it. Work your way through your list and eventually, your debt will be repaid.
Pay Your Debt With The First Balance
On the other hand, it may be better for you to pay off your debt first with the lowest balance, so that you can make a quick profit. Hopefully, you will feel good about paying off a debt earlier, and it will help you stay motivated to continue paying down your other debts. However, it is important to remember that you have more interest on larger debts, and it may cost you more, in the long run, to pay off your smaller debts first. It is about what works best for you.
Pay More Than The Minimum
If you try to repay a credit card, you are paying more than the minimum amount. The more you can repay each month, the faster you will repay the debt and the less interest you will be charged.
Track Your Spending
Track everything you spend for a month and be honest with yourself! But before you bring out the old pen and paper, check your bank’s or credit union’s mobile banking app. Many financial institutions have built expense tracking into their online platforms, making it very easy to see your spending habits. It’s worth it!
When the month has expired, check where you can spend your money and where you can save. Put this extra money into paying off your debts.
Create A Budget
If you haven’t done it yet, it’s a good idea to create a budget and plan what you can afford to spend each month. A budget is a great way to break down the categories in which you spend your money and figure out how much you need to spend and save. It can also show areas where you can save. If you need a place to get started, you can try this budget planner from the Canadian government.
Be Frugal
The less money you spend on non-essential goods, the more money you can put into paying down your debts.
Being frugal can be done in a few different ways. Here are some of our favorites:
- Grab mason jars and label them as your main spending categories. This could be food, bills, entertainment, emergency savings, and debt repayment. Assign a certain amount of cash per month to these jars and use only what you have. If you end up not using all the cash in one jar, add it to the money you have set aside for your debt repayment.
- Freeze your spending every now and then for a full seven days. Of course, make sure you have enough food in the fridge and your bills paid – you don’t freeze them. But, save for emergencies, you don’t spend for a whole week. Learn more about what you can live with and find other places to cut your spending.
Consolidate Your Debt
When you take out a consolidation loan, your bank or credit union consolidates your debt into a loan at a monthly rate, sometimes at a lower interest rate. This is an excellent option if you can put away money each month that will be used to repay that debt.
If you consolidate your debt using a loan or line of credit, you can pay off your debt at a monthly rate, while repaying each installment separately. A consolidation loan can assist you to get rid of your debt if:
- It has a lower interest rate than your other debt
- It has a lower monthly rate than all your debts combined
- If you can avoid taking on even more debt with your free credit
If you make your payments on time, you will continue to reduce your debt without affecting your credit score.
Start A Side Hustle
Maybe your day job doesn’t cut you off and you need to earn more to live comfortably and pay off your debts. Think about taking a few extra hours of work on the side. Maybe you can work freelance in your current area or maybe you’d rather do something that is extremely flexible, like delivery. There are many options if you want to have a few extra hours a week to pay off your debts.
File A Consumer Proposal
If you are really in trouble, you can submit a consumer proposal to your creditors with the help of a licensed insolvency administrator. This proposal is an option for bankruptcy and best for those who can’t manage their debts but have a stable income.
The Consumer Proposal can help you reach an agreement with your creditors. It can allow you to make fixed payments on your debt and in some cases, you do not have to pay interest. Many creditors accept consumer proposals as they would rather pay something back than nothing. They are usually willing to accept less than the full amount you owe for your debt and are willing to negotiate a payment plan that works for you.
